U.S. Stocks Cap Best 2-Day Rally Since October Amid Jobs Report

Feb 07, 2014 4:16 pm ET

Feb. 7 (Bloomberg) -- U.S. stocks rose, with the Standard & Poor’s 500 Index capping its best two-day rally since October, amid optimism economic growth is robust enough to weather stimulus cuts even as data showed weaker-than-forecast hiring.

Expedia Inc. jumped 14 percent after the online travel company said increased advertising and hotel-room bookings helped boost sales. Apple Inc. rose 1.4 percent on a report that the company bought back $14 billion of its shares. LinkedIn Corp. slumped 6.2 percent after saying sales growth will slow for a fifth consecutive quarter.

The S&P 500 climbed 1.3 percent to 1,797.02 at 4 p.m. in New York. The index rose 0.8 percent in the past five days, capping its first weekly advance in a month.

“The broader data beyond just this one jobs report tells us the economic recovery is intact and the economy’s growth rate is continuing to strengthen,” Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said by phone. “I just don’t think the market is looking at it and saying that this one number changes the overall trajectory of what the Fed is trying to do.”

The S&P 500 rallied 2.6 percent in the past two days, the most since Oct. 11, with the gauge posting consecutive gains of at least 1 percent for the first time since Jan. 2, 2013. The surge has trimmed the index’s decline from a record on Jan. 15 to 2.8 percent from as much as 5.8 percent.

Jobs Data

Payrolls rose 113,000 in January, less than the 180,000 advance projected in a Bloomberg survey of economists, as retailers cut back after the holidays and government hiring fell. The unemployment rate unexpectedly declined to 6.6 percent, the lowest level since October 2008.

Today’s report showed 262,000 Americans were not at work because of inclement weather in January, little changed from the same month last year. The so-called participation rate rose to 63 percent from 62.8 percent even as more people entered the labor force.

“The number wasn’t a disaster,” Phil Orlando, New York- based chief equity market strategist at Federated Investors Inc., which oversees about $376 billion, said in a phone interview. “Folks like me are looking through the headline miss, and recognizing and appreciating that there was some weather factor, but the underlying strength is still there.”

The Federal Reserve has been scrutinizing employment data to determine the timing and pace of cuts to stimulus. The central bank last week said it will press on with a second reduction to its monthly bond buying, by $10 billion to $65 billion, citing an improvement in the labor market.

The Fed last month reiterated it’ll probably hold the target interest rate near zero “well past the time” the unemployment falls below 6.5 percent.

‘Buying Opportunity’

“This is a buying opportunity. We gets jobs data that is very volatile and we are seeing better economic growth,” Jeffrey Kleintop, chief market strategist at LPL in Boston, which manages about $400 billion, said by phone. “I think the Fed will consider this data, but the Fed has noted that there are other data points they look at.”

Three rounds of stimulus from the central bank have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

The index rallied 1.2 percent yesterday, as claims for unemployment benefits fell and earnings from Walt Disney Co. surpassed estimates. The advance followed a 2.3 percent plunge on Feb. 3, the most since June, when disappointing data on manufacturing raised concern about the strength of the world’s largest economy.

Debt Ceiling

U.S. Treasury Secretary Jacob J. Lew said U.S. borrowing authority may not last past Feb. 27 and urged Congress to extend the debt ceiling as soon as possible. Congress and President Barack Obama agreed in October to suspend the debt ceiling until the end of today as part of an agreement to end a 16-day partial government shutdown.

About two-thirds of S&P 500 companies have posted quarterly earnings this season, with 76 percent beating profit estimates and 66 percent exceeding sales projections, data compiled by Bloomberg show. Profit for members of the gauge probably increased 8.3 percent in the final three months of 2013, while sales climbed 2.7 percent, according to analysts’ estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index dropped 11 percent today to 15.29. The gauge of S&P 500 options known as the VIX fell 17 percent in the past five days, the biggest weekly drop since October.

Broad Rally

All 10 S&P 500 main industries advanced at least 0.6 percent. Boeing Co. rallied 3.6 percent to $127.02, capping its best day since October to pace gains among industrial stocks. Merck & Co. added 1.8 percent to $54.77, a fourth straight gain, as health-care stocks advanced 1.8 percent for the best performance.

Expedia jumped 14 percent to a record $74.45 after saying adjusted earnings rose 46 percent to 92 cents a share in the three months ended Dec. 31. That exceeded the 85-cent average of analyst estimates compiled by Bloomberg.

TripAdvisor Inc. jumped 9.5 percent to $84.45 and Orbitz Worldwide Inc. added 4.2 percent to $7.43.

News Corp. rose 8.7 percent to $17.41. The newspaper publisher that owns the Wall Street Journal and the New York Post reported second-quarter profit of 31 cents a share, excluding some one-time items. That surpassed the average projection that called for 19 cents.

Apple, Moody’s

Apple, the world’s largest public company by market value, advanced 1.4 percent to $519.68. Apple bought the stock after its latest earnings report sent the shares lower, the Wall Street Journal said today, citing Chief Executive Officer Tim Cook. Apple spokesman Alan Hely confirmed the purchase in an e- mailed statement.

Moody’s Corp. climbed 4.2 percent to a record $80.02. The owner of the second-largest credit-ratings company posted fourth-quarter profit that beat analysts’ estimates as slower company bond sales were offset by a rise for structured-finance grades.

Gap Inc. rose 5.8 percent to $42. The clothing retailer said fourth-quarter profit was probably between 65 cents and 66 cents per share, according to a statement late yesterday. That would top the average analyst estimate for profit of 59 cents a share. Gap will report its full financial results for the period on Feb. 27.

LinkedIn, Cigna

LinkedIn lost 6.2 percent to $209.59. Sales will be $455 million to $460 million in the first three months of this year, according to a statement yesterday. Analysts projected revenue of $469.4 million, according to the average estimate compiled by Bloomberg.

Cigna Corp. fell the most since August 2011, dropping 9.3 percent to $77.47. The health insurer said first-quarter earnings probably will decline and provided a full-year forecast lower than analysts expected.

Wyndham Worldwide Corp. declined 2.8 percent to $70.34. The hotel franchiser said it expects to earn $4.28 a share at most this year. That missed the average analyst estimate of $4.33 in a Bloomberg survey.

--With assistance from Sofia Horta e Costa in London and Lu Wang in New York. Editors: Jeremy Herron, Jeff Sutherland